This is the ninth chapter reprinted with permission from Redevelopment: The Unknown Government, A Report to the People of California published by Municipal Officials for Redevelopment Reform (MORR). Ninth Edition, September 2007.

By law, a redevelopment agency can receive property taxes only after it has first incurred debt. Property tax increment revenues may only be used to pay off outstanding debt. Debts may be in the form of bonds, accounts payable to developers or reimbursements to cities for operating expenses.

Part IX: Housing Scam

By state law, redevelopment agencies must spend 20% of their budgets on housing. This housing set-aside fund was intended to improve the quality and expand the supply of low cost housing.

In reality, however, most agencies resist spending money on new housing. When they do, the funds are often squandered on high-cost projects that enrich developers and often displace more people than they house.

When Anaheim "improved" its working class Jeffrey-Lynne neighborhood, it forced existing apartment owners to sell to Southern California Housing Corp. Half of the units were demolished, over 400 tenants evicted and those that remained saw their rents doubled. Public subsidy: $54 million.

The Brea Redevelopment Agency demolished its entire downtown residential area, using eminent domain to force out hundreds of lower-income residents. Much of its housing money has since been spent on mixed-use projects that are really more commercial than residential. The agency gave $649,000 in housing funds to a largely retail development that will include only eight loft apartments. Earlier, Brea allocated $30 million in housing funds for a street widening.

Many other agencies find creative ways to "launder" their housing money into commercial and other uses.

Indian Wells certainly does not want any working-class people in its gated city of mansions and golf courses. The Indian Wells Redevelopment Agency repeatedly tried to transfer all of its housing funds to nearby Coachella, a largely poor Latino community. The State Department of Housing and Community Development has since ruled the transfer is illegal, that "Indian Wells has the obligation to use 20% of its annual property tax increment for affordable housing within its borders. Indian Wells has used redevelopment funds to build upscale hotels and golf courses that employ many low wage workers who are without affordable housing because it shirks its responsibility."

Many cities simply refuse to spend any of the required 20% on housing. The City of Industry's aggressive use of redevelopment has built shopping malls and auto plazas, yet not one new housing unit has been built there in the agency's history.

The California Redevelopment Association has long lobbied the legislature for the elimination of the housing requirement. Housing advocates have been able to keep the 20% mandate but have come to realize that it has done nothing to help low-wage earners or expand low-cost housing. Like much else in redevelopment, the original intent has been ignored.

"Local governments are penalized for housing, and rewarded for other things," states William Fulton, editor of California Planning and Development Report. "Many cities don't want to accommodate housing."

The real effect of redevelopment has been to increase housing costs statewide. To make up for losses to redevelopment property tax takeaways, school districts have levied new fees on residential development. Cities are happy to subsidize infrastructure for retail centers, then shift the burden to new housing. Commercial developments are subsidized, while residential developments face rising fees for streets, sewers, water and schools, often far beyond their direct impact.

The fiscalization of land use ties up too much property in commercial zones, thus keeping out needed housing. The actual redevelopment-funded housing that is built may gentrify an area, but the poor residents are simply shifted elsewhere.

Often the poor have nowhere to go at all. Describing L.A.'s Skid Row homeless the Catholic Worker's Jeff Dietrich writes, "They are here as a result of the city's redevelopment policy, which over the years has slipped billions of tax dollars into the pockets of rich developers while systematically stripping the urban core of its lowest cost housing."

A shift away from sales tax reliance to property tax would be a first step in more affordable housing. Cities would be rewarded for maintaining quality residential areas, rather than simply luring more retail. New homes would not be spurned as a burden, but welcomed as new property tax contributors.

This will happen if cities rely less on sales taxes and receive a greater share of local property taxes. But these new property taxes must be spent on infrastructure and public safety, and not siphoned away by redevelopment agencies. In the meantime, redevelopment remains an unneeded extra layer of government, which has only added to housing costs statewide.